Bank of America 2012 Annual Report Download - page 166

164 Bank of America 2012
days past due or, for loans in bankruptcy, 60 days past due. Credit
card and other unsecured consumer loans are charged off no later
than the end of the month in which the account becomes 180
days past due or within 60 days after receipt of notification of
death or bankruptcy.
Commercial loans and leases, excluding business card loans,
that are past due 90 days or more as to principal or interest, or
where reasonable doubt exists as to timely collection, including
loans that are individually identified as being impaired, are
generally placed on nonaccrual status and classified as
nonperforming unless well-secured and in the process of
collection.
Accrued interest receivable is reversed when commercial loans
and leases are placed on nonaccrual status. Interest collections
on nonaccruing commercial loans and leases for which the
ultimate collectability of principal is uncertain are applied as
principal reductions; otherwise, such collections are credited to
income when received. Commercial loans and leases may be
restored to accrual status when all principal and interest is current
and full repayment of the remaining contractual principal and
interest is expected, or when the loan otherwise becomes well-
secured and is in the process of collection. Business card loans
are charged off no later than the end of the month in which the
account becomes 180 days past due or 60 days after receipt of
notification of death or bankruptcy filing. These loans are not
placed on nonaccrual status prior to charge-off and, therefore, are
not reported as nonperforming loans. Other commercial loans and
leases are generally charged off when all or a portion of the
principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or
lease is contractually delinquent if the minimum payment is not
received by the specified due date on the customer’s billing
statement. Interest and fees continue to accrue on past due loans
and leases until the date the loan is placed on nonaccrual status,
if applicable.
PCI loans are recorded at fair value at the acquisition date.
Although the PCI loans may be contractually delinquent, the
Corporation does not classify these loans as nonperforming as
the loans were written down to fair value at the acquisition date
and the accretable yield is recognized in interest income over the
remaining life of the loan. In addition, reported net charge-offs
exclude write-offs on PCI loans as the fair value already considers
the estimated credit losses.
Troubled Debt Restructurings
Consumer loans and commercial loans and leases whose
contractual terms have been restructured in a manner that grants
a concession to a borrower experiencing financial difficulties are
classified as TDRs. Concessions could include a reduction in the
interest rate to a rate that is below market on the loan, payment
extensions, forgiveness of principal, forbearance, or other actions
designed to maximize collections. Secured consumer loans that
have been discharged in Chapter 7 bankruptcy and have not been
reaffirmed by the borrower are classified as TDRs at the time of
discharge. Consumer real estate-secured loans for which a binding
offer to restructure has been extended are also classified as TDRs.
Loans classified as TDRs are considered impaired loans. Loans
that are carried at fair value, LHFS and PCI loans are not classified
as TDRs.
Secured consumer loans whose contractual terms have been
modified in a TDR and are current at the time of restructuring
generally remain on accrual status if there is demonstrated
performance prior to the restructuring and payment in full under
the restructured terms is expected. Otherwise, the loans are
placed on nonaccrual status and reported as nonperforming,
except for the fully-insured loans, until there is sustained
repayment performance for a reasonable period, generally six
months. If accruing consumer TDRs cease to perform in
accordance with their modified contractual terms, they are placed
on nonaccrual status and reported as nonperforming TDRs.
Consumer TDRs that bear a below-market rate of interest are
generally reported as TDRs throughout their remaining lives.
Secured consumer loans that have been discharged in Chapter 7
bankruptcy are placed on nonaccrual status and written down to
the collateral value, less estimated costs to sell, no later than the
time of discharge. Interest collections on these loans are generally
recorded in interest income on a cash basis. Credit card and other
unsecured consumer loans that have been renegotiated in a TDR
are not placed on nonaccrual status. Credit card and other
unsecured consumer loans that have been renegotiated and
placed on a fixed payment plan after July 1, 2012 are generally
charged off no later than the end of the month in which the account
becomes 120 days past due.
Commercial loans and leases whose contractual terms have
been modified in a TDR are typically placed on nonaccrual status
and reported as nonperforming until the loans or leases have
performed for an adequate period of time under the restructured
agreement, generally six months. If the borrower had
demonstrated performance under the previous terms and the
underwriting process shows the capacity to continue to perform
under the modified terms, the loan may remain on accrual status.
Accruing commercial TDRs are reported as performing TDRs
through the end of the calendar year in which the loans are returned
to accrual status. In addition, if accruing commercial TDRs bear
less than a market rate of interest at the time of modification, they
are reported as performing TDRs throughout their remaining lives
unless and until they cease to perform in accordance with their
modified contractual terms, at which time they are placed on
nonaccrual status and reported as nonperforming TDRs.
A loan that had previously been modified in a TDR and is
subsequently refinanced under current underwriting standards at
a market rate with no concessionary terms is accounted for as a
new loan and is no longer reported as a TDR.
Loans Held-for-sale
Loans that are intended to be sold in the foreseeable future,
including residential mortgages, loan syndications, and to a lesser
degree, commercial real estate, consumer finance and other loans,
are reported as LHFS and are carried at the lower of aggregate
cost or fair value. The Corporation accounts for certain LHFS,
including first mortgage LHFS, under the fair value option.
Mortgage loan origination costs related to LHFS that the
Corporation accounts for under the fair value option are recognized
in noninterest expense when incurred. Mortgage loan origination
costs for LHFS carried at the lower of cost or fair value are
capitalized as part of the carrying amount of the loans and
recognized as a reduction of mortgage banking income upon the
sale of such loans. LHFS that are on nonaccrual status and are
reported as nonperforming, as defined in the policy herein, are
reported separately from nonperforming loans and leases.